NIE 2023 | Frost & Sullivan Executive: Investment and Financing Analysis of the Biotechnology Market from 2022 to 2023

Looking at the investment and financing situation in the biopharmaceutical market, the number and amount of investment and financing events in China's primary market peaked in 2021 and 2020 respectively. Mao Hua pointed out that although there have been some fluctuations in investment and financing later on, resulting in a decrease in the number and amount, the overall trend remains positive.

Looking at the segmented tracks, from 2022 to September 25, 2023, small molecule, immunotherapy, and gene therapy were ranked as the top three areas in terms of investment and financing heat, attracting capital. According to publicly disclosed data, nearly 140 financing events have occurred in the small molecule innovation drug track, with a total financing amount reaching 14.49 billion yuan. Immunotherapy and gene therapy followed closely behind, with total financing amounts reaching 9.26 billion and 7.34 billion yuan respectively. In addition, AI drug research and development has also emerged as a highly regarded track.

From the perspective of investment cycle distribution, the primary market investment and financing rounds in China's biopharmaceutical sector are mainly concentrated in rounds A and earlier. Mao Hua stated that early-stage project investments have dominated in recent years, but there have been some changes starting in 2022. Due to the high uncertainty associated with the success and commercialization of early-stage projects, the proportion of late-stage project investments has increased, showing a more balanced distribution. Subsequently, Mao Hua shared the major investment and financing events in the biopharmaceutical industry in 2022 and 2023, with the top five events all exceeding 500 million RMB in financing scale.

Since the second half of 2021, the biomedical technology indices in the three regions of Hong Kong, Macau, and Shenzhen have shown a consistent downward trend. The valuation correction has also affected financing in the primary market. Since the opening of the registration system, the number of listed biomedical companies on the Hong Kong Stock Exchange's 18A and Science and Technology Innovation Board (STAR Market) has been rising steadily, jumping from 8 in 2019 to 20 in 2020, and then slowing down in 2022.

Regarding the performance of the secondary market, Mao Hua pointed out that since the second half of 2023, the Hong Kong stock market has become more active. Currently, the number of new project launches is at a relatively high level, indicating that there may be more companies disclosing or going public in the future. From 2018 to September 25, 2023, there were 46 biopharmaceutical companies listed through the Hong Kong Stock Exchange's 18A segment and the fifth set of standards for the Sci-Tech Innovation Board, as well as 19 companies.

Looking at the fundraising situation from IPOs, the amount raised by companies listed on the A-share market is roughly 4 to 5 times that of Hong Kong stocks. Many companies still prefer to choose the A-share market because their financing amount can bring about a higher valuation. However, the fifth set of rules for the Sci-Tech Innovation Board is conservative, with a longer listing process and relatively strict requirements. Hong Kong stocks, on the other hand, are a market-oriented listing channel with a relatively faster pace and fewer requirements for companies.

The investment and financing activity in the medical device market surged in 2020 and peaked in 2021, with the total number of financing events and the disclosed total financing amount reaching 617 and RMB 47.53 billion respectively. Subsequently, the activity began to slow down in 2023. Looking at the sub-sectors, from 2022 to September 25, 2023, the financing activity for surgical robots, cardiovascular interventional devices, and medical consumables ranked first, second, and third respectively.

Mao Hua has conducted a detailed analysis of the investment and financing logic for niche markets. Surgical robots help clinicians achieve more precise treatment work. Currently, various surgeries are entering the era of robots, including laparoscopy, orthopedics, natural orifices, ophthalmology, and tumor intervention. At the same time, the surgical robot market is also relatively more mature in terms of financing. Cardiovascular interventional devices are closely related to the increasing burden of cardiovascular diseases due to the trend of population aging, and the product line itself is also in continuous iteration, thus having significant investment value.

Since the second half of 2021, both the medical device indices in the Mainland and Hong Kong have shown a downward trend, with the primary market returning to rationality. In 2021, as many as 11 medical device companies went public on the Hong Kong Stock Exchange through 18A listings; in 2022, three companies went public on the Hong Kong Stock Exchange through 18A listings, marking the first time that a medical device company has made its debut on the fifth set of the Sci-Tech Innovation Board.

Mao Hua pointed out that the medical device sector has shown a good development momentum in the secondary market. Although there are fewer listed companies in the medical device sector compared to biomedicine, the number of medical device companies listed on the Hong Kong Stock Exchange and the Sci-Tech Innovation Board is gradually increasing. Investors also hold a high interest in the medical device sector, and as long as the investment logic can be explained and clinical pain points can be addressed, medical device companies can obtain considerable financing amounts. In addition, the medical device sector is relatively diversified, including cardiovascular intervention, genetic testing, ophthalmic equipment, orthopedic products, etc., which makes it a sector with diverse characteristics.

Regarding industry prospects, Mao Hua believes that the scale of China's biotechnology industry is currently relatively small due to the low penetration rate of innovative drugs and medical devices in the domestic market. Regarding track changes and investment logic, Mao Hua pointed out that the biotechnology industry is developing rapidly, and opinions and judgments on the same field may change significantly in a short period. Using an investment logic from 1 to 99 to evaluate innovative products from 0 to 1 may lead to disconnection.

Regarding product marketization and corporate development, Mao Hua emphasized that companies need to focus on their marketability rather than just clinical value. Returning to the market is an important part for companies to showcase their strengths, attract investment, and implement their products. Regarding investment mentality, Mao Hua stated that in an industry with significant fluctuations, investors need to have a positive attitude. Frost & Sullivan will disseminate more in-depth perspectives, bringing more positive impacts to the industry and enhancing industry confidence.